Westscheme hurt by unlisted assets

THE state's biggest industry superannuation fund, Westscheme, has shed its impressive gains generated in the years leading up to the financial crisis after its large portfolio of unlisted assets was savaged by the downturn.

The former high-flying fund, which manages $2.5 billion of retirement savings for more than 200,000 members, lost more than 20 per cent from its flagship super product during the financial year, sinking it to the bottom of one-year performance tables, according to researcher SuperRatings.

Westscheme chief executive Howard Rosario said the strategy that hinged on unlisted assets outperforming stock markets over the long term would remain in place.

"The cash flow hasn't changed. We've got enough liquidity," he said.

"Because of the credit crunch and perception that banks aren't lending, valuers are taking a conservative stance on refinancing."

Mr Rosario said the super fund was not a forced seller, and that he expected valuations to rise again in due time.

Advised by Access Capital Advisers, industry funds Westscheme and another former high-flyer, MTAA Super, invest more than 40 per cent of their default fund portfolio in unlisted assets, such as ports, property, airports and roads, compared to an industry average of about 15 per cent.

The strategy had worked well until the financial crisis hit.

Westscheme's five-year performance is an annualised 3.5 per cent, compared to a default fund average of 4.2 per cent, according to SuperRatings. About 80 per cent of money flows into default funds.

The methodology used to value unlisted assets has long been debated, with critics arguing the funds were reporting optimistic prices - determined by third parties - during the downturn.

Regulator APRA sent a letter to super trustees in April that said valuations for unlisted assets should be obtained independently and updated regularly, particularly in times of market volatility.

Infrequent valuations can aid a savvy member who sells units early to achieve an artificially high price, to the detriment of those remaining in the fund.

SuperRatings managing director Jeff Bresnahan said not all funds with unlisted assets were as hard hit as Access clients.

"Unlisted was obviously a contributor but some held up really well," he said.